Whilst this case primarily concerns the calculation of the profits of LLPs with corporate members, the implications mean that there is likely to be broader interest for groups involving LLPs and limited companies.
Private equity houses are increasingly investing into the professional services sector, with LLPs typically being the key trading entity. Where the post-transaction intention is to, for instance, integrate the newly acquired business into an existing corporate group or for the business to be conducted through a limited company, this may involve the transfer of certain intangible assets, including valuable client contracts.
The transfer of ‘new’ intangibles (post 1 April 2002) between related parties may result in a corporation tax charge based on the market value of the assets. As briefly touched on within Muller, where such a transfer is between an LLP and a company, the provisions for a tax-neutral transfer may not be met. For both a group reorganisation and a M&A transaction, this may result in unexpected costs. Within the context of a deal, both buy and sell-side parties must consider how to manage this, even where the terms are at arm’s length.
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